pool resources of partners and use funds to invest in young entrepreneurial ventures

financial crisis

occurs when anincrease in asymmetric information from a disruption in the financial system prevents the financial system from channeling funds efficiently from savers to households and firms with productive investment opportunities

financial liberalization

the elimination of restriction on financial markets and institutions, or the introduction of new types of loans or other financial products

credit boom

lending spree, dark side of financial liberalization

lenders may no have expertise or incentives to manage risk appropriately in new lines of business

deleveraging

reducing dependence on debt

asset-price bubble

rise of assets about their fundamental economic values by investor psychology (ex tech stocks late 90s)

bank panic

multiple banks unable to pay off depositors and other creditors due to deteriorating balance sheets

exacerbated by depositor panic (bank run)

debt deflation

a substantial unanticipated decline in the price level sets in, leading to further deterioration in firms' net worth because of the increased burden of indebtedness

credit speads

AKA risk premiums, return on securities

securitization

combination of various debt agreements into securities

subprime mortgages

mortgage to borrower with crap credit

mortgage backed securities

combining high risk mortgages into standardized debt security

financial engineering

development of new, sophisticated financial instruments products

structured credit products

derived from cash flows of underlying assets, tailored to particular risk characteristics of different investors

collateralized debt obligations

paid out cash flows from subprime mortgage backed securities into tranches (higher tranches, higher in pecking order in case of default)